How does cryptocurrency mining work?
Posted by John Smith on July 15th, 2022
To understand how cryptocurrency mining works, it is necessary to understand how transactions occur on a blockchain like Bitcoin. See the example below:
When a user sends a cryptocurrency or parts of it to someone else, that transfer is recorded on the blockchain within a vault-like block. This block, as soon as it becomes full of transactions from multiple users, needs to be “sealed” with an identifier, which works like a padlock. In computer science, this is called a hash.
Who puts the hash on the block (or the padlock on the vault) are the miners - the name of the people and companies that use their computers to help maintain the whole system. In return, they receive very “fat” rewards in cryptocurrency. Spoiler: earnings are in the millions of reais every 10 minutes.
To find the correct hash of a block, however, miners have to solve complex mathematical problems. This would not be a seven-headed bug, since everything is done through hardware and software.
The big issue is that, with the popularization of BTC, several miners try to find the solution at the same time, leaving the process super competitive. Therefore, the more people try to mine, the more computing power is needed to find the solution.
After a miner finishes the calculation and finds the result, he presents it to the entire network. If the other members say “ok, that's correct”, the new block is added to the chain. After that, a new competition begins to check the next block, and so on. This is where the name blockchain, or chain of blocks, in Portuguese comes from.
How much does a Bitcoin miner make?
As established by the BTC protocol, as payment for the service miners earn cryptocurrencies as a reward. Each block is mined with a powerful mining machine like Innosilicon a6+ ltcmaster, on average, every 10 minutes. In one hour, 37.5 new units of Bitcoin are “manufactured”; in 24 hours, 900 BTC is put into circulation. Therefore, the daily gross revenue of the activity is almost R$ 300 million.
It is important to note that the “premium” paid to miners and therefore the money supply to the market is halved for every 210,000 blocks mined, in an event called halving. This cut, which gives the deflationary character to the digital asset, occurs, on average, every four years.
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